What is/are the purpose/purposes of Government’s ‘Sovereign Gold Bond Scheme’ and ‘Gold Monetisation Scheme’?

1. To bring the idle gold lying with Indian households into the economy.

2. To promote FDI in the gold and jewellery sector.

3. To reduce India’s dependence on gold imports.

Select the correct answer using the code given below:

The correct answer is 1 and 3 only.

To understand why statements 1 and 3 are correct while statement 2 is incorrect, let us analyse each statement carefully in the context of India's Sovereign Gold Bond (SGB) Scheme and the Gold Monetisation Scheme (GMS), both launched by the Government of India in 2015.

Statement 1 — "To bring the idle gold lying with Indian households into the economy" ✔ CORRECT

India is estimated to hold over 25,000 tonnes of gold with households, temples, and other institutions — one of the largest such reserves in the world. This gold simply sits idle and does not contribute productively to the economy. Both schemes directly address this problem:

The Gold Monetisation Scheme (GMS) allows individuals, trusts, and institutions to deposit their physical gold with banks. In return, they earn interest on the gold deposited, similar to a bank fixed deposit, but in gold terms. The gold deposited is then melted and used productively — for example, lent to jewellers — thereby mobilising idle household gold into the economic mainstream.

The Sovereign Gold Bond (SGB) Scheme allows investors to buy government-issued bonds denominated in grams of gold, instead of buying and storing physical gold. Investors earn a fixed annual interest (2.5% per annum) and the bond's value tracks gold prices. This discourages the hoarding of physical gold by providing a safer, productive alternative. Together, both schemes aim to draw idle gold back into circulation, making Statement 1 correct.

Statement 2 — "To promote FDI in the gold and jewellery sector" ✔ INCORRECT

Neither the SGB Scheme nor the GMS has anything to do with promoting Foreign Direct Investment (FDI). These are domestic schemes targeted at Indian residents, households, institutions, and trusts. Their purpose is to mobilise domestically held gold and reduce the need for importing fresh gold — not to attract foreign investment into the gold or jewellery sector. FDI policy for the gold and jewellery sector is governed separately through the Department for Promotion of Industry and Internal Trade (DPIIT) and has no connection to these two schemes. Therefore, Statement 2 is incorrect.

Statement 3 — "To reduce India's dependence on gold imports" ✔ CORRECT

India is one of the largest importers of gold in the world, and gold imports are a significant contributor to India's Current Account Deficit (CAD). One of the primary macroeconomic motivations behind both schemes is to reduce this import burden:

If households deposit or invest their existing physical gold through these schemes instead of buying more fresh gold, the overall domestic demand for newly imported gold decreases. The gold mobilised through the GMS can be recycled within the economy — for instance, lent to jewellers who would otherwise need to import fresh gold for their manufacturing needs. Similarly, if investors choose SGBs (paper gold) over physical gold purchases, the demand for importing physical gold falls.

This directly reduces India's gold import bill, strengthens the Balance of Payments, and eases pressure on the rupee. Hence, Statement 3 is correct.

Conclusion:

Only Statements 1 and 3 correctly describe the purposes of the Sovereign Gold Bond Scheme and the Gold Monetisation Scheme. Statement 2 is factually incorrect as neither scheme is related to promoting FDI. The answer is therefore "1 and 3 only".